Morgan Stanley (NYSE:MS) said in a statement that it has received the Federal Reserve’s approval to buy the remaining 35 percent stake in Morgan Stanley Smith Barney Holdings from Citigroup Inc (NYSE:C). The deal is expected to be closed by the end of this month. After the deal, Morgan Stanley will own the entire 100 percent of the brokerage business, which now operates as Morgan Stanley Wealth Management.
Morgan Stanley to Pay $4.7 Billion
The New York-based bank’s CEO James Gorman said that he will notify Citigroup Inc (NYSE:C) that Morgan Stanley (NYSE:MS) intends to pay the previously agreed $4.7 billion in cash for the remaining stake. The Federal Reserve approved the deal after its annual stress test showed that it’s James Gorman-led bank has enough capital to move forward.
The brokerage venture was created in 2009 by combining Citigroup Inc (NYSE:C)’s Smith Barney division with the Dean Witter franchise. Morgan Stanley (NYSE:MS) acquired a majority stake in the venture during the financial crisis. Gorman said that his bank has focused its entire energy on finalizing the Smith Barney deal. Buying a controlling stake proved beneficial for Morgan Stanley as its wealth management unit is now the world’s largest brokerage. It has $1.79 trillion of AUM and 16,284 financial advisers worldwide, according to Michael J. Moore of Bloomberg. It now accounts for about 50 percent of Morgan Stanley’s total revenues.
Morgan Stanley to Improve Margins
John Gorman says that controlling the entire stake in its wealth management unit will bring Morgan Stanley (NYSE:MS) an additional $400 million in 2013. He says those earnings will come from more retail deposits and orders, and elimination of non-controlling interest payment to Citigroup Inc. (NYSE:C). The wealth management unit has recorded a 17 percent pre-tax margin over the past two quarters. Gorman thinks the bank can further boost profit margins by increasing the number of banking and lending products sold to individual clients.
RBC analyst Fiona Swaffield said in a research note that margins at the wealth management division are expected to increase to 20-225 by 2015, and may go above 23 percent if markets and interest rates continue to improve.
Morgan Stanley (NYSE:MS) shares rose 0.56 percent to $25.29 at 9:42 AM EDT.